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USD/JPY Spikes After ISM Manufacturing Data Surpasses Expectations

USD/JPY Spikes After ISM Manufacturing Data Surpasses Expectations

Diego Colman, Contributing Strategist

Talking Points:

- US ISM Manufacturing rises to 54.7 from 53.2 versus 53.8 expected.

- USD/JPY spikes after ISM Manufacturing data beats market consensus.

- Check out the DailyFX economic data calendar for market moving releases in the upcoming days.

U.S. factory output continued its positive trend and expanded for the fourth consecutive month after a sub-zero print in August a survey by the Institute of Supply Management showed earlier today.

The latest ISM Manufacturing Index increased to 54.7 from 53.2 in the previous month suggesting that the factory sector continues to stabilize after a prolonged slump and despite renewed dollar strength that ensued the U.S. Presidential Election. As a reminder, a print above 50 in the ISM Index signals expansion in the manufacturing economy whereas a reading below 50 indicates contraction. Analysts polled by Bloomberg News had expected the ISM Index to hit 53.8.

The component breakdown showed that New Order accelerated to 60.2 from 53.0 while Production jumped to 60.3 from 56 in November. Meanwhile, employment ticked up to 53.1 from 52.3 pointing to a pick-up in hiring which will likely lead to further tightening in the labor market. At the same time, new order exports rose to 56 from 52, a sign that external demand may be gaining some momentum.

It is important to note that even as factory activity continues to improve, the recent dollar appreciation may prove to be problematic for US manufacturers and may represent a headwind for the sector over time as a strong currency curtails external demand.

Here is a summary of the US data:

- USD ISM Manufacturing (DEC): 54.7 versus 53.8 expected, from 53.2.

- USD ISM Prices Paid (DEC): 65.5 versus 55.5 expected, from 54.5.

- USD ISM New Orders (DEC): 60.2 from 53.

- USD ISM Employment (DEC): 53.1 from 52.3.

Chart 1: USD/JPY 1-minute Chart (January 3, 2017 Intraday)

Immediately after the data, USD/JPY extended its daily advance rising from 118.139 to 118.60 or 0.75% for the day, as the report could provide ammunition to policy makers to continue tightening monetary policy in 2017 with the US economic recovery well on course.

Read more: US Dollar Starts Off the New Year with a Bang

--- Written by Diego Colman, DailyFX Research

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.